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Deutsche Bank predicts second solar “gold-rush”

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Leading investment house Deutsche Bank has dramatically lifted its demand forecasts for the global solar industry – predicting that 46 gigawatts (GW) of solar PV will be installed across the world in 2014, before jumping by another 25 per cent to 56GW in 2015.

It notes that the world’s three biggest solar markets – co-incidentally located in the world’s three biggest economies, US, China and Japan – are currently booming and are likely to deliver what market analysts describe as more “upside demand surprises.”

But it also points to other countries such as India, Australia, South Africa, Mexico, as well as regions in the Middle East, South America and South East Asia, to act as strong growth contributors.

“The majority of these markets are at grid parity and as such sustainable,” the analysts write. “Moreover, we believe some of the grid and financing constraints that have inhibited growth so far are set to improve in 2014.”

Deutsche Bank cited 5 principal reasons for its raised forecasts – which if occur would show that the global solar PV market will have nearly doubled from 2012 to 2015.

The first is the spread of grid parity – where the cost of solar is cheaper for homes and businesses than retail rates of electricity. Deutsche says solar is currently competitive without subsidies in at least 19 markets globally and it expects more markets to reach grid parity in 2014 as solar system prices decline further.

Here’s a graph to illustrate that grid parity claim.

Deutsche solar parity

The other reasons cited by Deutsche were:

- US based distributed generation business models set to become more pervasive in international markets and act as a significant growth catalyst in European markets that have significantly scaled back subsidies.

- Financing costs and availability for the solar sector are set to improve from 2014 – it noted that sufficient access to low cost financing has been a significant constraint inhibiting the growth of global solar sector so far.

- It expects downstream solar companies to participate in the “gold rush” to acquire solar customers at an accelerated pace. “Just like upstream/midstream solar companies participated in the gold rush to add manufacturing capacity during the 2005-07 timeframe, we expect another gold rush to add recurring MW over the next 2-3 years “until the (US investment tax credit) expires around 2016.

- While the past 5 years were above module cost reduction, the next 3 years would be about reductions in the balance of systems costs. This includes includes the cost of  inverters, hardware, customer acquisition and financing costs.

Deutsche says its base case demand estimate assumes the Japanese market increases from around 7GW in 2013 to around 8GW in 2014, the US market increases from 6GW in 2013 to 8GW in 2014 and the China market increases from 8GW to  around 12GW.

We expect Europe to account for  7 to 8GW of installations and international markets to account for  around 12-17GW of demand.

“Specifically within international markets, we expect India, South Africa, South America, South East Asia, Australia and other emerging markets to each contribute to over 1 GW per market.  See separate story for a précis on the Australian market).

Deutsche cited system prices, financing costs and the policy outlook to act as increasing tailwinds for the solar sector over the next 12-18 months.

“Solar module prices are likely to remain at record low levels for the next 18 months and beyond that timeframe, we see some inflationary pressures driving prices higher,” it writes.

“While balance of system costs have room to decline further, we expect a rapid decline in these costs over the next 18 months and then expect inflationary wage pressures on overall costs.

“Along the same lines, while overall financing costs have room to decline as solar moves down the risk curve and innovative financing structures drive down costs, we expect rising global interest rate environment from 2015 timeframe to drive upward pressure on overall financing costs.

“Bottom line: we expect solar LCOE to reach a cash bottom over the next 18-24 months and expect a rush for installations during the corresponding period.” 

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  • adam

    interesting.

    Fair enough PV LCOE might be lower than average grid cost of electricity (significantly in some countries as the image shows), but I imagine the LCOE value is marginal cost of energy from the PV system, not necessarily value to the residence owner.

    For example, the effective “PPA” signed by the utility with the system owner is well below the average grid energy cost in Australia (as delivered to the home). Therefore unless you can’t use it yourself it’s not really grid parity, and PV as a solution isn’t so obvious financially without incentive schemes to offset this loss of value.

    Further to this, see the rumblings from in the Energy White Paper on “valuing the availability of the grid” not the electricity from it – sounds like we should anticipate increased connection costs or some other form of levy for the privilege of available power despite not consuming it.

    Do other countries face these issues as well?

    Adam

    • Chris Fraser

      I would imagine the LCOE of produced energy is the ready reckoner when deciding how to design and aquire the system. LCOE includes the cost of finance, so there really is no need to consider interest rates unless they suddenly increase exponentially, giving investors a shock. And that doesn’t include intangible things – the value of the energy is somewhat doubled for many exporters as they also feel they are contributing to the issue we are going through.
      I agree with your PPA comparisons – true there is much overhead in the energy we buy from central generators. But notice that self-use is working to undermine the centralised model, which perhaps provides market influence on PPAs in the future, driving them lower still.

    • Keith

      Adam,

      The White Paper making threatening noises about charging lots for connection will just drive people to explore going off-grid.

      Note that major energy supplier Vector in New Zealand understands that it needs to engage with consumers and it is offering a package that involves solar panels, batteries and smart controllers, while it stays in the picture by financing and controlling where the power goes. See : http://www.vector.co.nz/solar

      Time for Aussie companies to get with this or we’ll have massive grid abandonment with much chaos following from this. The Govt needs to help, not facilitate chaos.

    • Mike Shurtleff

      Adam,
      You raise a good point, but I agree with Keith on the issue of going off grid. In markets where there is a large savings when getting your home electricity from Solar PV, instead of from the grid, residential customers will consider going off-grid if the utilities push them there by raising grid costs. Australia is one of those high-margin markets where this is going to happen. I don’t think Australian end-of-grid electricity costs are shown correctly in the graphic above. I think end-of-grid costs are more like 29c/kWh, as Ronald Brakels says. The penetration of residential solar is already significant in Australia, as a result of this. FIT? Sure, but the differential cost savings are there now without any incentives. Italy, Greece, Chile, California, Hawaiian islands, Caribbean islands, and others are the same. (Only reason Saudi Arabia isn’t up there is the government heavily subsidizes their oil generated electricity to lower the cost …and they’re changing that by installing Solar and NG electricity.)

      Low-cost battery storage is coming to the market right now. There are several companies with several different technologies …and make no mistake, this is lower-cost storage. One, or a few, are likely to be successful. Do some searching on EOS, Ambri, Aquion, Lithium Ion grid storage, and LightSail compressed air storage. There are others.

      Solar PV is the Cell Phone of power technology. This is a disruptive transition and there is going to be disruption. In the future, in many places, the market will be able to provide off-grid solutions at a lower cost than grid tied electricity. In some cases this will mean individual off-grid homes. In other cases it will mean small communities or towns with their own micro-grids. Why will this happen? It will happen because maintaining the grid costs money and it is not getting cheaper.
      This is where I disagree with Keith. In some places it will simply be cheaper to have Solar and Storage with no grid. Solar and Storage are still getting cheaper and nobody knows when this will stop …not soon, especially with respect to storage.
      Will there still be a grid? Sure, maybe several in Australia, interconnected or not I’m not sure, BUT they won’t be as big, and they won’t have as many customers as they do now. There will be some hiccups getting there, but it won’t be chaos, it will just be different. …like cell phones verses landlines.

      Regards, mike

  • derekbolton

    The graph seems to show the average price of residential electricity in Australia as 17c/kWh. Presumably that’s USD, so make that 19c AUD, but that’s still much less than the reality – more like 27c. Am I misreading something?

    • Ronald Brakels

      The figures they give for Australia do seem rather odd. All up residential electricity in Australia costs about 28.5 cents a kilowatt-hour or probably more than that now. On my last bill I paid 41 cents per kilowatt-hour. Looking at the Solar Choice price index for December I see that installed solar PV now costs all up an average of about $2.55 a watt, so to get the 16 cents a watt figure in the graph above they’d need to be using a discount rate of about 8%. if solar systems are assumed to have an average lifespan of 25 years. If solar is assumed to have a lifespan of 30 years then the discount rate would be about 9%. So for residential users the cost of electricity is about half of the marginal cost of purchasing electricity from the grid.

      However, new solar typically now only gets a feed in tariff of about 8 cents or less. So the strangely small difference between what they give for the price of grid electricity and solar generated electricity maybe a result of somehow factoring in Australia’s now low feed in tariffs. Or they may just be using outdated information as Australia’s retail electricity prices rose astoundingly fast by world standards.

      • Bob_Wallace

        Charging you 41 cents but buying back power for only 8 cents?

        It’s time for storage if the grid is doing that to you. A simple bank of lead-acid batteries should store for 20 cents per kWh.

        • Ronald Brakels

          Yep, Coal-ition types are trying to stuff the solar genie’s toe back in the bottle while meanwhile the battery storage genie is tapping them on the shoulder. There’s going to be a lot of changes around here.

          • Bob_Wallace

            What’s looking best for storage at the moment?

            Anyone selling a quick install system for a decent price?

          • Ronald Brakels

            I got a business card from a guy while I was waiting for the Dutch to obliterate everyone in the World Solar Challenge, but I haven’t followed up on it yet. Now where did I put it?

  • Guest

    Where can I access the primary source?

  • Mike Shurtleff

    Mr. Parkinson,
    You are prolific! Thank you for all the great articles!
    I do see a likely error in the data graphics shown. The cost of residential electricity in Australia is not correct. It is shown here to be 29c/kWh:
    http://cleantechnica.com/2013/09/30/average-electricity-prices-around-world/
    – September 2013 “What’s The Average Price Of Electricity In…”
    Also, I’ve read comments from Australians a year or two back claiming 25c/kWh and 27c/kWh. I believe you’re Australian yourself, so you are probably well aware of this.
    This is of great import in Australia since residential Solar PV electricity is close to half the end-of-grid cost of electricity there. This should have shown up above as one of the “high-margin”, read “high-growth-rate”, markets.
    Too bad Hawaii and other Caribbean markets are not shown, the margin is much higher. Similar cost for Solar PV as California, but in September 2011 end-of-grid
    electricity in Hawaii jumped to a range from 33c/kWh to 45c/kWh depending on which island. Similarly, for many other islands that use oil to generate their
    electricity. Similarly again, for Saudi Arabia and many other Middle Eastern
    countries that still use oil for electricity.
    Thanks,
    mike